Critical: S&P Says It May Downgrade Credit Rating Even If Debt Limit Is Raised

This is one of the most important messages for us to repeat until people get it.

Liberals treat raising the debt limit as if, with the stroke of a pen, we can simply authorize ourselves to spend and spend and spend more money than we have.

That's not true.

An average citizen can, by connivance or dopey decisions by a credit card company, raise his own credit card limit or take new mortgages on his house; but just as with that average citizen, there may be very severe consequences later for living outside of one's means.

That is, there is the arbitrary, pen-stroke raising of the debt limit.

And then there is the real credit-worthiness of a person or entity like the US, which is determined by its debt-to-revenue ratio.

A 50 percent likelihood that the U.S. will lose its top credit rating from Standard & Poor’s even if Congress reaches agreement on raising the debt ceiling left markets little changed.

“I don’t know if anyone is taking the situation seriously at the moment,” said Marchel Alexandrovich, an economist at Jefferies International Ltd. in London. “It’s seen as a bit of a hollow threat.”

...

The U.S. will lose the AAA credit rating it has held since 1941 if New York-based S&P finds that a “credible solution” to the nation’s rising debt burden isn’t likely for the foreseeable future, the firm said yesterday. Borrowing will continue to rise unless a $4 trillion fiscal consolidation plan is agreed on, S&P said.

Let me propose the new narrative the GOP must press at every opportunity:

The President says he's trying to preserve our credit rating. He is not. Absent showing the markets some serious reforms that will put us on a sustainable path, our credit rating will be downgraded, not due to a debt-ceiling imposed default, but simply due to the fact we cannot pay the bills we are accumulating.

Over and over again we have to say The President's plan -- or non-plan -- is what leads to a downgrade. We're the ones trying to save our credit rating, and that can only happen when Washington brings its spending priorities in line with what the public is actually willing to pay for government.

They're not willing to pay 25% of GDP for government. They have been willing, historically, to pay 18-21%. We must bring spending to that level.

Anytime we try to spend more than that, we always do simply by borrowing from our children. And we have now maxed out the possible debt we can lay on our children, and we have followed that up with going to 90% of the max of what our grandchildren can pay.

We can borrow no more, and we have shown, as a country, we are willing to pay not much more. Ergo, spending must be reduced to a realistically sustainable level.

Our biggest creditor -- someone we should listen to, as they've been floating our loans for 20 years, and are now telling us they're wary of extending further credit -- are telling us to cool it on the spending. The Chinese warning was in fact almost entirely about the regular debt-service -- the vig we owe them -- but there's also this:

In China, Dagong Global Credit Rating, a Chinese rating agency that downgraded its assessment of the U.S. last November, said Thursday that it had placed that rating on a negative watch list, citing the declining solvency of the U.S. government, slow economic growth and high fiscal deficits.

Simply maxing out a new credit card -- the biggest one we've taken out yet, $2.5 trillion for just 18 months of living expenses! -- will not fix this problem. The problem can only be fixed by lifestyle changes.